Krugman on Spending Cuts: 'Kick the Can Down the Road'

The best way to deal with the automatic spending cuts, known as sequestration, that were put in place to deal with the nation's rising national debt, now at over $16.5 trillion, is to delay them from going into effect, said Pulitzer prize winning economist Paul Krugman. To do that, he advised President Barack Obama to offer future "vague spending cuts" and "real revenue sources." The belief, though, that liberals want to spend more money on government, is "imaginary," he added.

Unlike raising the nation's debt ceiling, Krugman explained Sunday on CNN's "Fareed Zakaria GPS," "the world won't end if we go a month into [sequestration], so, [Obama] can afford to wait. Where, I believe the Republicans will have to cave, eventually.

"... [Obama] he should look for some ... face-saving way for everybody to just kick this can down the road. We shouldn't do anything right now."

When host Fareed Zakaria asked what should be done, Krugman replied, "we could have some vague spending cuts promised in the future, some real revenue sources. ... all in the future, this is a terrible time to do austerity."

Krugman, an economics professor at Princeton University and a liberal columnist and blogger for The New York Times, is one of the most well-known advocates of "Keynesian economics," or increasing government spending and lowering taxes, or keeping taxes low, when there is a recession or slow economic growth.

Congress and Obama already "kicked the can down the road," or delayed, the sequestration once. The sequestration was part of the Budget Control Act of 2011. It was intended to force Congress and the president to come to the negotiating table to agree on a "grand bargain" long term deficit reduction package that would reform entitlement programs to reduce the long term growth in government and reform the tax code to make it more efficient, broader based and increase revenue. They have not been able to agree, though, on such a package.

As part of the bill that was passed to avoid the "fiscal cliff," sequestration was delayed from going into effect for three more months.

Krugman added that White House officials have told him that they agree with him – government borrowing should increase so that more money could be spent, which he argues would stimulate the economy, but the White House does not think it is possible to pass a new stimulus bill while Republicans control the House of Representatives.

"Maybe they're telling me what I want to hear," Krugman said, "but when I talk to people at the White House, they understand about jobs, they understand that we really should have another stimulus plan, but they see absolutely no hope of getting it, so they focus on things they think they can get," such as immigration reform and gun control.

"I don't think there's been a big change in Obama's values," he added, "except maybe he has given up his dreams of having this kind of 'grand bargain,' which was always a foolish dream to begin with."

Krugman also said that conservatives misunderstand liberals when they believe that liberals want more government spending. Liberals want universal health care, he said, but beyond that, the belief that liberals want to spend more money on government is "imaginary."

"Conservatives always imagine that liberals are their polar opposite – conservatives want less spending so liberals must want more spending for its own sake. It's not true. Liberals want universal health care, which they sort-a kind-a got, which cost some money, though not a whole lot. That's it. The rest is imaginary," he said.